What Is Economics? Unlimited Wants vs. Limited Resources

What Is Economics?
Every day on the nightly news, on the internet, in the newspaper, or in a magazine, everyone seems to have something to say about the status of the economy. Ask someone over lunch what economics means to him or her and he or she will probably reply that it is something to do with money. Well, money does play a part of economics, but it is not the only focus of economics.

Money has no real value in itself, you cannot eat it, wear it, and it does not come off as a good bumper sticker. The value of money is what it can do and how individuals, institutions, and governments use it to obtain goods and services.

The study of economics focuses on the goods and services produced by an economy. Economics is also the study of choosing. Who chooses? Everyone: individuals, families, businesses, and educational/religious/political institutions even choose. Remember, you even make a choice when you choose not to choose.

The major concern of economics is how to use our limited resources to produce goods and services to satisfy our needs and wants. The limitation of resources imposes constraints on production. We just cannot produce everything we need and want. This means societies have to make decisions. If we had unlimited forests, we could use a tree for any purpose and not worry because there would always be other trees available. But because we know that isn't always going to be the case, thought has to be given to how our trees are used.

Why? Because as soon as we choose to use a tree for one purpose (e.g., as lumber for a house), we lose the opportunity to use that tree for another purpose (e.g., paper for books). Therefore, because our resources are limited, we must make decisions about how we are going to use them. When we use a resource for one purpose, we lose the opportunity to use it for something else.

Basic Economic Questions
There are three basic economic questions that every nation must consider when making these choices. They are:

• What goods and services shall be produced?
• How shall they be produced?
• For whom should it be produced?

Within every nation, people must have some method of deciding what combination of goods and services they should produce with their limited resources

Once the question of what to produce is answered, it is necessary to decide what production methods are to be used. For example, food can be produced by a large number of workers using simple and inexpensive tools, or by a small number of workers using complex and expensive machinery.

As another example, we only have to look at the automobile industry. Just how many cars could be produced by hand as compared to the combination of man and machinery?

Because no nation can produce enough goods and services to satisfy everyone's wants, it is necessary for people to have a method of deciding who gets the goods and services produced. Should everyone get an equal share or should some people get more goods and services than others? This question is harder to answer, because it involves the issue of fairness and different people have different ideas of what is fair.

Economic systems (e.g., communism, socialism, capitalism) address the basic economic questions in different ways. A key element is the freedom that individuals possess over production factors and economic interests.

Unlimited Wants vs. Limited Resources

As people grow older, they soon discover that they cannot have everything. Indeed, you are reminded of this lesson every time you shop for food or clothing. Individuals and businesses must choose from among the things they would like to have. Like you and me, they cannot have everything, and they must decide between the needs and the wants.

Even the American government, one of the wealthiest in the world, cannot have everything. Every year, some of the bitterest political debates concern the question of how the government ought to spend money.

Individuals, businesses, and governments all need to make choices from among the things they would like to own or do. The ones who make the choices closest to their objectives are the successful ones.

The purposes of economic systems, whether traditional, command, or market, are to provide goods and services for the people in their particular society. People have certain needs (necessities) such as food, clothing, and shelter. Without these basic services of survival, we all would have a problem. There are other goods and services that one might call wants (luxuries) that are not needed for survival, but make life easier or more enjoyable. Together, this represents a large quantity of goods and services that people in a society would like produced.

The problem a society faces is that not enough goods and services can be produced to satisfy society's collective needs and wants. In economics, scarcity is a subjective concept. This means that it is properly measured in terms of human wants.

Our economic choices are limited in terms of human wants. Our economic choices are also limited by factors of production: natural resources such as minerals, land, and forests; labor, in the form of doctors, machinists, computer programmers, and so forth; capital, the means for production like factories and machines; and the entrepreneurial ability of those who wish to try running a business.

Technology could be added to this list. Technology changes so fast that you can be far behind your competition almost overnight. For example, just look at how fast the computer technology is changing. Your computer you are working on right now is already out of date with new technology coming out every day. By the time it hits the shelf, it is obsolete compared to the new technology that is currently being produced. Wow!